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Presentation objectives 1.Discuss a case study of sub national public roads investment; point out general and specific factors leading to success; and program risks and vulnerabilities Issue: positive features explained mostly by local conditions and IDB Team approach to sector sustainability in Santa Catarina

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Presentation objectives 2.Present a general framework for transportation sector planning Issue: sector sustainability impossible to reach overnight; institutional progress obtained setting in motion a virtuous cycle in which (i) a good project is selected, then (ii) given a feasible financial structure and (iii) sector institutions develop incremental skills that are precisely needed for project’s success

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Fiscal situation 1993: second federal bailout (net debt increased) Santa Catarina bailout 2: debt amounting to 3.57% of its 1993 GDP (1.61% of total bailout) 1994: federalization of state bonds : stabilization led to real expenditures after nominal wage increases in states Payroll expenditures became almost 80% of net revenues in Southern states

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Santa Catarina´s transport system Unpaved state roads: 36% in optimal/good state; 24% in poor state (2000) State road safety in charge of Policía Rodoviaria No large cities. Traffic levels in most state roads are low or insufficient to think of pure concessions Geographically balanced production. Ex: textiles and automotive parts in northern SC; ceramics in central SC; sea fishing

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Program design, implementation and performance IDB-SC shared knowledge of problems and solutions Approach: fund projects linked to institutional uplifts needed for current performance and sustainability Formal sequence: program objectives and components, project selection, financial dimensioning. Half the story Role of a sector framework

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Program design, implementation and performance Early environmental assessments and public consultations Executing Agency is DER (in other places an external body is needed to set up) No ex post evaluation of IV phase available Proxy: IDB Report RE-298 (Oct 2004): ‘Evaluation of Brazil Country Program ’

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Program design, implementation and performance Physical completion of transportation projects is satisfactory Road maintenance is insufficient at both the federal and state levels Inefficiencies and misaligned incentives: well- maintained state roads deteriorate from excess traffic induced by poorly kept federal highways

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Lessons and remarks On this Program 2 Caveats –The political economy of fiscal federalism –Indebtedness ratification by state legislature –PPP could be used in SC (DER SC overstaffed) –“Transplantation” of this experience partially replicable; adaptation depends on local factors and skill of public agencies

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Lessons and remarks On this Program 3 Brazil far from being physically integrated. 60% commercial cargo, 90% passengers move through roads built during 60-70s. Low quality by international standards Insufficient expenditure in infrastructure, slow growth and custo Brasil likely related. But quantification is lacking Need of sophisticated economic analysis (transport in an open, multi-region economy)